2.0
Why may local authorities need material sales guidance?
This guidance is designed for almost all authorities, with the exception being those
authorities with very long-term contracts that outsource ownership of recyclables with
no provision for the value obtained to impact on the contract cost. However, the nature
of an authority’s current material sales arrangements will affect the extent to which
each section is applicable. In order to simplify the range of local authority
circumstances, authorities can be considered to fall somewhere on the spectrum
between:
 Those who take a risk-averse approach in order to ensure budget certainty and
stability; and

Those who seek to maximise income despite the impact this can have on budget
certainty and exposure to downside risk.
2.1.1 Authorities who take a risk-averse approach
Whilst this section acknowledges the benefits of budget certainty, it highlights the
opportunities that taking a more flexible approach to local authority finance can bring.
However, taking advantage of the potential for greater income from material sales may
require a degree of change in attitude and will entail continuous monitoring and
evaluation of markets and commercial risks.
For many local authorities, receiving income from the sale of dry recyclables that is in line with an
annual budget and maintaining a stable budget from year to year are important factors, allowing the
funding of services to be planned for more easily. Clearly no budget holder likes to report that there
is a shortfall in income in relation to budget. In some cases, ‘too much’ income in a given year can
also present an issue if in budget setting in subsequent years it becomes an expectation.
Achieving income stability is therefore an understandable objective for all local authorities. However,
this section sets out the issues associated with requiring stability in material income within a budget.
Obtaining fixed prices may result in the authority losing a significant opportunity for income
generation, for example, when fixing prices before a period of increase in material values. When
confidence in markets is low, contractors will reflect this by pricing against the risk of a downturn in
a fixed price contract, so in practice that downside risk is simply priced in and paid whatever the
market actually does.
Many local authorities have to grapple with unpredictable budget/income lines in other service areas.
Demand for front line services can fluctuate considerably (driven for example by changes in
economic conditions or even winter weather conditions) and can be as unpredictable as market
values for dry recyclables, if not more so. Yet local authorities are often more risk averse when it
comes to material sales than they are in other fundamentally uncertain parts of their budget.
Authorities accept that some services, such as winter gritting, are going to be susceptible to
unpredictable cost variations due to a changing demand for the service. Arguably the same view
should be applied to materials trading, because taking the fixed price approach often leads to less
overall income in the longer term. By considering material sales revenue in the context of a local
authority’s overall treasury management strategy, it may be possible for more commercial risk to be
taken, to the long-term benefit of the authority.
Some local authorities employ strategies to deal with significant fluctuations in material incomes from
year to year, as well as some years where income does not match the set annual budget. Prior to
determining the basis for selling materials, officers should engage senior finance team colleagues to
ascertain the extent to which some fluctuation can be accommodated if it is felt that this will enable
the best overall value to be obtained.
Approaches to Materials Sales: A guide for local authorities
2.1.2 Authorities who are prepared to take more risk
Those authorities already prepared to be exposed to risk in their materials trading
strategies may obtain ideas from the guidance that helps to improve their approach to
material sales.
In times of austerity, budget savings are at the forefront of priorities for officers and elected
members. In the past many authorities adopted a more risk-averse approach however, approaches
to commercial risk (and opportunities for reward) are increasingly being reassessed. Many authorities
no longer have the option of being as risk-averse, as the scale of financial savings required mean
significant change and accompanying risks across the board.
In an ideal world authorities would always be able to ensure they receive the best prices that the
market has to offer. However, the point in time at which you agree the sale of recyclable materials
will have a significant bearing on any fixed price you can get (this is further described in Section 3),
as market prices fluctuate over time, driven by supply and demand in the marketplace. As much as
you may try to forecast future prices, there is always an element of luck involved in securing a fixed
price that turns out to represent good value for the duration of the contract.
Authorities therefore need to recognise that there is a trade-off between budget stability and access
to the best possible prices over a given period of time. The right trade-off for a particular authority
should be based on an understanding of how much risk they are willing to accept (the concept of risk
is described further in Section 4). This varies between authorities and may also vary over time, based
on changing financial needs and budget pressures.
The approach that was taken the last time a sale was made may not remain the best way to obtain
the best value for your authority in the future. Sales strategies should be reviewed on a regular basis
to ensure that the authority is successfully adapting to changing market conditions within the
constraints of an acceptable risk profile.
Part of this on-going evaluation should seek to understand current attitudes of key players in the
market. For example, during the consultation process undertaken to develop this guidance, collection
contractors indicated some significant recent changes in attitudes to risk (see Section 7 for details).
Approaches to Materials Sales: A guide for local authorities